The compilation of these Trial Balance and Rectification of Accounting Errors Notes makes students exam preparation simpler and organised.
Preparation of Trial Balance
A Trial Balance is a statement that shows the total debit and total credit balances of accounts. The total debt amounts shall be equal to the credit amounts. It thus verifies the arithmetical accuracy of the postings in the ledger accounts. We will now study the methods of Preparation of Trial Balance – totals method, balance method, and total-cum-balance method.
Preparation of Trial Balance
We can prepare the Trial Balance in the following three ways:
1. Totals Method
In this totals method, we ascertain the total of each side in the ledger i.e. debit and credit, separately and show them in the respective columns in the Trial Balance. Here also the total of the column with debit totals should tally with the total of the column of the credit totals. The dual aspect concept holds true in this case also.
However, the totals method is not in use widely as it does not determines the accurate balances of the accounts and thus, also does not help in the preparation of the financial statements or final accounts.
2. Balances Method
In this method, we total the debit side and the credit side of the accounts and balance them. We then write these debit or credit balances of the ledger accounts in the respective debit and credit columns in the Trial Balance. A trial balance tallies when the total of the debit column is equal to the total of the credit column.
This method is the most common method as it shows the net effect and also helps in the preparation of the financial statements. Usually, in the trial balance instead of showing the individual accounts of the debtors and creditors, we show Sundry Debtors and Sundry Creditors accounts, respectively.
3. Totals-cum-Balances Method
In this method, we prepare four columns. In two columns we write debit and credit totals of accounts and in the other two columns, we write the debit and credit balances of accounts. This method consumes a lot of time and is a duplicate of work. Hence, it is rarely in use.
Example:
Question:
From the following information prepare a trial balance using all three methods.
Capital A/c
Cash A/c
Salary A/c
Drawings A/c
Bank A/c
Furniture A/c
Purchases A/c
Ram’s A/c
Amit’s A/c
Shyam’s A/c
Sales A/c
Ajit’s A/c
Dipu’s A/c
Answer:
1. Totals Method
Trial Balance as at…..
2. Balances Method
Trial Balance as at…..
3. Totals-cum- Balances Method
Trial Balance as at…..
